Trade Reforms and Plant-Level Productivity Gains : Role of Tariff Reduction, Technological Spillovers and Variety Growth

How does trade liberalization impact productivity at the micro level in the economy? Using a panel data of Indian manufacturing plants for the period 1998-99 to 2007-08 this study examines the mechanisms through which trade impacts productivity growth at the production level in the economy. These mechanisms include trade induced pro-competitive effect, technological spillovers and import and export variety growth. We use two estimation techniques and find significant impact of these mechanisms in driving plant level productivity growth. Productivity gains arising from input channels are found to be greater than the output channels. The study also looks into the role of various plant level characteristics and state level institutional factors in influencing these micro level productivity gains